Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back

Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is very bullish, as the S&P 500 builds substantially on Monday's sharp gains, despite Eurozone debt angst, rising global growth fears and rising food/energy prices. On the positive side, Coal, Alt Energy, Oil Service, Steel, Semi, Bank, I-Banking and Homebuilding shares are especially strong, soaring more than +5.0%. Small-caps and cyclicals are outperforming. (XLF) has traded very well throughout the day. Copper is rising +5.43%. The 10-Year Yield is rising +9 bps to 2.08%. The Germany sovereign cds is falling -7.15% to 100.0 bps, the Italy sovereign cds is falling -7.79% to 485.83 bps, the Spain sovereign cds is falling -9.88% to 408.33 bps, the France sovereign cds is dropping -10.78% to 200.83 bps and the Belgium sovereign cds is dropping -16.52% to 303.67 bps. On the negative side, Retail shares are underperforming, rising less than 2.0%. Oil is rising +.75%, gold is gaining +1.86% and the UBS-Bloomberg Ag Spot Index is rising +.64%. The European Financial Sector CDS Index is still near its Nov. 25 all-time high. The TED spread continues to trend higher and is at the highest since May 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is the highest since March 2009. The Libor-OIS spread is the widest since June 2009, which is also noteworthy considering the equity surge off the recent lows. China Iron Ore Spot has plunged -31.8% since February 16th and -27.7% since Sept. 7th. The Shanghai Composite fell -3.3% overnight, as it nears its October lows, and is down -17.0% ytd. This move lower in equities occurred before China cut the reserve requirement ratio 50 bps. This would leave the RRR for large banks at 21.0%. The market seems to believe this is a major shift in policy. However, I suspect this is just another "tweak", unless their economy is in much more trouble than their officials are currently indicating. Volume remains lackluster, however leadership and breadth were much improved today. Given investment manager underperformance, a subsiding in eurozone debt angst and seasonal strength, I still suspect stocks can build on recent gains over the short-term after a brief pause. However, over the intermediate-term, recent central bank actions do not address the real problem, the European sovereign debt crisis, in a meaningful way. While US economic data remain mostly firm, a real solution to the Eurozone crisis is needed in short order to prevent a global double dip next year, in my opinion. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, investor performance angst, a bounce in the euro, seasonality, technical buying and less financial sector pessimism.

Fed Lowers Interest Rate on Dollar Swaps. Six central banks led by the Federal Reserve made it cheaper for banks to borrow dollars in emergencies in a global effort to ease Europe’s sovereign-debt crisis. Stocks rallied worldwide, commodities surged and yields on most European debt fell on the show of force from central banks aimed at easing strains in financial markets. The cost for European banks to borrow dollars dropped from the highest in three years, tempering concerns about euro’s worsening crisis after leaders said they’d failed to boost the region’s bailout fund as much as planned. “It’s supportive but not necessarily a game changer,” said Michelle Girard, senior U.S. economist at RBS Securities Inc. in Stamford, Connecticut. “The impact is more psychological than anything else” as investors take heart from policy makers’ coordination, Girard said. The premium banks pay to borrow dollars overnight from central banks will fall by half a percentage point to 50 basis points, the Fed said today in a statement in Washington. The so- called dollar swap lines will be extended by six months to Feb. 1, 2013. The Fed coordinated the move with the European Central Bank and the central banks of Canada, Switzerland, Japan and the U.K. The six central banks also agreed to create temporary bilateral swap programs so funding can be provided in any of the currencies “should market conditions so warrant.” Those swap lines were also authorized through Feb. 1, 2013.

Euro Ministers Seek Greater IMF Role as Bailout-Fund Expansion Falls Short. European finance ministers said they would seek a greater role for the International Monetary Fund alongside their own bailout fund in their latest gamble at taming the euro zone’s sovereign debt crisis. Ministers turned to the IMF after conceding that higher interest rates and lower appetite for European bonds made it impossible for the European Financial Stability Facility to be leveraged up to its 1 trillion euro ($1.3 trillion) target. Meeting in Brussels, the ministers also suggested that any IMF help or increase in bond purchases by the EFSF, and possibly by the ECB, depends on a Dec. 9 summit of heads of government accepting German demands for governance changes that would tighten enforcement of budget rules. “The feasibility of interventions by both bodies depends on making progress on institutional matters such as moving toward fiscal union,” new Italian Prime Minister Mario Monti said after the meeting. “The euro summit of next week will be fundamental because further progress has to achieved on the governance of the euro zone.” With about $390 billion currently available for lending, the Washington-based IMF may not have enough money to meet demand if the global outlook worsens, managing director Christine Lagarde has said. The IMF is co-funding the bailouts of Greece, Ireland and Portugal and is preparing to send a team to Italy for an unprecedented audit of that country’s efforts to cut its debt. “We’re ready in general to increase the IMF’s funds by means of bilateral loans,” Schaeuble told reporters. “If the IMF, to widen its leeway to act, wants to increase its Special Drawing Rights, then that’s something we’re ready to talk about.” Boosting the IMF’s resources may not be so simple, said Tony Fratto, former White House and Treasury Department spokesman in the George W. Bush administration. “It will be very difficult if not impossible for the U.S. to contribute fresh resources to the IMF,” he said in an e-mailed comment.

Corporate, Sovereign Bond Risk Tumbles in Europe, Swaps Show. The cost of insuring against default on European corporate debt fell, according to traders of credit- default swaps. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings dropped 33 basis points to 758.5, according to JPMorgan Chase & Co. at 3 p.m. in London. A decline signals improved perceptions of credit quality. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was down 11.75 at 184 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers declined 29.5 basis points to 301.5 and the subordinated gauge was 42 lower at 533.

EU Writedown Plan Puts Banks' Long-Term Debt in Firing Line. Owners of long-term unsecured debt in a collapsing bank would be first in line to take losses under draft plans from the European Union to protect taxpayers’ money from future bailouts. Short-term debt, with a less than one-year maturity, and derivatives should only be written down by regulators as a last resort if losses from longer-term debt aren’t “sufficient to restore the capital of the institution and enable it to operate as a going concern,” according to a draft European Commission proposal obtained by Bloomberg News. “They are terrified of inadvertently killing off the interbank market,” Simon Gleeson, a financial services lawyer at Clifford Chance LLP in London, said in a telephone conversation. “This is a desperate attempt” to preserve it.

Commodities Rise to Two-Week High as Fed, Central Banks Boost Liquidity. Commodities rose to the highest in almost two weeks after the Federal Reserve cut the cost of emergency funding for banks in Europe as part of a global effort to stem the region’s sovereign-debt crisis. The Standard & Poor’s GSCI index of 24 raw materials rose 1.2 percent to 661.08 at 12:51 p.m. New York time. Earlier, the measure reached 664.56, the highest since Nov. 17. Industrial and precious metals led the rally. In the two weeks ended Nov. 25, the GSCI gauge dropped 4.5 percent as borrowing costs surged in Europe, imperiling the euro and banks.

China Reduces Reserve Ratios to Spur Bank Loans. China cut the amount of cash that banks must set aside as reserves for the first time since 2008 as Europe’s debt crisis dims the outlook for exports and growth. Reserve ratios will decline by 50 basis points effective Dec. 5, the People’s Bank of China said in a statement on its website today. Before the announcement, the level was a record 21.5 percent for the biggest lenders, based on previous PBOC statements. A government clampdown on property speculation has added to the risk of a deeper slowdown in the economy that contributes the most to global growth. Exports rose by the least in almost two years in October and inflation eased to 5.5 percent, the smallest gain in five months. “The move will help ease liquidity after previous tightening measures cooled credit growth too much and may have added to the risks of a hard landing for China,” Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia Ltd., said before today’s release. Premier Wen Jiabao said last month the government will fine-tune economic policies as needed to sustain growth while pledging to maintain curbs on real estate.

PBOC Adviser Says Don't Count on China Easing Property Curbs. China’s policy “fine-tuning” doesn’t mean credit controls will be loosened and people shouldn’t hope for a reversal of curbs on the property market, central bank adviser Xia Bin said. Fine-tuning “will target areas where the financial system isn’t giving effective support due to some failures in the system,” Xia said at a forum in Beijing today, citing examples such as ensuring lending to small businesses. It doesn’t mean “loosening curbs on property. Don’t count on it,” he said.

China Raises Electricity Price, Caps Coal Cost Amid Power Profit Squeeze. China, the world’s biggest energy user, increased retail and wholesale electricity prices for the first time in six months and said it will cap the cost of power- station coal in a move that may reduce outages in coming months. Wholesale rates charged by coal-fired power plants to distributors, or the on-grid tariff, rose by 0.026 yuan (0.41 cent) a kilowatt-hour effective today, according to a statement on the National Development and Reform Commission website yesterday. Retail power prices rose by an average 0.03 yuan a kilowatt-hour, the NDRC said. Price gains for contract thermal coal next year will be limited to less than 5 percent, it said.

U.S. Employment, Businesses Beat Forecast. Companies boosted payrolls in November by the most this year and U.S. businesses expanded at the fastest pace in seven months, giving the economy a lift as 2011 draws to a close. Private employment, which excludes government jobs, climbed 206,000 this month, according to data today from Roseland, New Jersey-based ADP Employer Services. The Institute for Supply Management-Chicago Inc.’s business barometer increased to 62.6 in November from 58.4 the prior month as orders and production strengthened.

Pending Sales of Existing U.S. Homes Exceed Forecasts With 10.4% Increase. The number of Americans signing contracts to buy previously owned homes rose more than forecast in October as buyers took advantage of falling prices and low borrowing costs. The index of pending home sales increased 10.4 percent, the biggest gain since November 2010, after falling 4.6 percent the prior month, figures from the National Association of Realtors showed today in Washington. Economists forecast a 2.0 percent increase, according to the median estimate in a Bloomberg News survey.

Blankfein May Be Deposed in Gupta Case. Goldman Sachs Group Inc. (GS) Chief Executive Officer Lloyd Blankfein and six others may be questioned under oath by lawyers for the Securities and Exchange Commission and Rajat Gupta, who was charged with insider trading as part of the Galleon Group LLC investigation.

Obama Administration Plans $304 Million Guided Bombs Sale to UAE. The Obama administration notified Congess today of proposed sale of 4,900 guided bomb kits including 600 bunker-buster bombs to the United Arab Emirates. The estimated price is $304 million, the administration said. Boeing Co. of Chicago and the McAlester Army Ammunication Plant in McAlester, Oklahoma, make the weapons, the notice said. “The proposed sale will improve the UAE’s capability to meet current and future regional threats,” it said.

L.A. Police Make Arrests, Begin Disbursing Occupy Camp. About 1,500 police officers streamed into the Occupy Los Angeles encampment early Wednesday morning, making arrests and gradually shutting down the two-month-old protest. By 2 a.m. Wednesday, police were still making arrests and leading protesters out of the park in front of the L.A. City Hall. By that time, many of the demonstrators had dispersed into the closed streets of downtown L.A., while others remained in the park.

Euro Region's Boost to Bailout Fund Falls Short of 1 Trillion-Euro Target. Euro-area finance ministers approved enhancements to their bailout fund while backing off from setting a target for its firepower and seeking a greater role for the International Monetary Fund in fighting the debt crisis. The finance chiefs of the 17 nations using the euro agreed to work on boosting the resources of the IMF so it can “cooperate more closely” with the European Financial Stability Facility, Luxembourg’s Jean-Claude Juncker told reporters late yesterday in Brussels after leading the meeting. “It’s very important that the IMF globally will increase its resources either by raising its capital or by bilateral loans so that it can lend more money to euro-zone countries in need,” Dutch Finance Minister Jan Kees de Jager said in an interview with Bloomberg Television after the meeting. “If we open the IMF effort, that will be sufficient together with the leverage options in the EFSF.” After a series of stop-gap accords failed to protect Italy and Spain from surging bond yields, the euro-area ministers are under growing pressure from U.S. leaders and international financial markets to find ways to boost the EFSF’s effectiveness. They agreed to a plan to guarantee up to 30 percent of new bond issues from troubled governments and to develop investment vehicles that would boost the facility’s ability to intervene in primary and secondary bond markets.

Europe Faces Repeat of Credit Crunch Liikanen Tells Kauppalehti. Europe risks descending into a new credit crunch as it lacks the tools to stamp out the spread of the debt crisis, European Central Bank council member Erkki Liikanen told Finnish business newspaper Kauppalehti. “If the sovereign debt crisis isn’t contained, a negative spiral may start again through banks,” Liikanen said in an interview with the Helsinki-based newspaper conducted yesterday and published today. “Great financial crises traditionally go through this phase.” European leaders are struggling to win investor confidence amid rising debt yields across the single currency area and after Germany last week failed to sell all bonds in an auction. Signs of deteriorating bank lending are emerging in the interbank markets. The difference between the 12-month secured Eurepo and same maturity unsecured Euribor rates that banks charge each other was at a post-Lehman high of 170 basis points yesterday, or 60 basis points lower than its high of 230 basis points on Oct. 31, 2008. Across Europe, 87 banks in 15 nations, including the largest lenders in France, Italy and Spain, may have their subordinated debt ratings cut to reflect the potential removal of government support, Moody’s Investors Service said yesterday. Common euro bonds won’t come soon enough to help resolve the crisis as “many great obstacles” stand in the way of introducing joint borrowing in the region, Liikanen said.

ECB's Stark Says Central Banks Must Maintain Focus on Price Stability. European Central Bank Executive Board member Juergen Stark said central banks must guard their independence and keep their focus on price stability or risk being dominated by free-spending governments. “Crucial challenges in this regard include the risk that monetary policy is overburdened by fiscally dominant regimes caused by government’s irresponsible fiscal behavior and unsustainable public finances,” Stark said today in the text of a lecture hosted by the Federal Reserve Bank of Dallas. Monetary policy also risks being “dominated by financial stability concerns, implying that price stability would be subjugated by financial stability,” Stark said in Dallas. To make policy more “robust,” Stark said central bankers “should recognize the centrality of price stability for monetary policy.” “The crisis is still on-going,” Stark said in a lecture about “Globalization and Monetary Policy: From Virtue to Vice.” Since 2007, the crisis has spread to “sovereigns with weaker balance sheets, which in turn contributed to increasing the vulnerability of the core financial system even further.” “In recent months, this negative and self-reinforcing dynamic of adverse feedback loops between weak sovereign and financial sector balance sheets has been all too apparent in parts of the euro area,” Stark said. Stark used the bulk of his speech to comment on the impact of globalization on monetary policy during the financial crisis. Global forces require “much greater economic policy co- ordination among monetary union members,” he said. He differed with the U.S. policy approach, which has given equal weight to maximum employment and price stability. “The ECB has never subscribed to the view that monetary policy has a primary role to play in the management of aggregate demand and we think that this element of the pre-crisis monetary policy paradigm should be revised,” he said.

BNP, SocGen Lose European Loans Share as Post-Lehman Gains Fade. France’s three biggest banks’ share of underwriting European loans tumbled to the lowest in five years as the region’s deepening crisis forces their retreat. BNP Paribas SA (BNP), Credit Agricole SA (ACA) and Societe Generale SA’s combined share of the $933 billion in syndicated loans this year in Europe, the Middle East and Africa fell to 14.9 percent from 16 percent, data compiled by Bloomberg show, as they gave back gains made after emerging stronger than rivals following the 2008 collapse of Lehman Brothers Holdings Inc. In France, the banks had the smallest slice of loans since at least 1999. “French banks benefitted from the post-Lehman fragility of U.S. and U.K. banks, but now they’ve been knocked down by the euro zone’s weakness,” said Jacques-Pascal Porta, who helps manage 600 million euros ($799 million) at Ofi Gestion Privee in Paris and holds BNP Paribas shares. “Today their obsession is: capital, capital, capital.”

Goldman(GS) to UBS Cut by S&P in Global Bank Rout: Credit Markets. Goldman Sachs Group Inc., Bank of America Corp. and UBS AG led the world's biggest banks in having their ratings cut by Standard & Poor's as debt of financial firms heads for its worst month since the credit crisis. S&P lowered the two U.S. lenders' rankings to A-, the seventh level of investment grade, from A, as part of criteria changes started three years ago. UBS was reduced to A from A+. Bank bonds have lost 3 percent in November, the worst monthly performance since September 2008 when Lehman Brothers Holdings Inc. collapsed, Bank of America Merrill Lynch index data show. Pressure is rising as Europe struggles to contain fiscal imbalances and the Organization for Economic Cooperation and Development reduces its 2012 global growth forecast to 1.6 percent from 2.8 percent. Lenders including Bank of America, Citigroup Inc. and Morgan Stanley have said they may need to post billions of dollars of additional collateral and termination payments on trades because of a one-level downgrade in their credit ratings. "It's clearly not over for the banks," said Marilyn Cohen, president of Los Angeles-based Envision Capital Management Inc., which manages $325 million in bonds. "It's not even close to the end." S&P also cut Morgan Stanley, Citigroup and Bank of America's Merrill Lynch unit to A- from A. JPMorgan Chase & Co. was reduced one level to A. S&P also downgraded Barclays Plc to A from A+, and HSBC Holdings Plc to A+ from AA-, according to the report.

Credit Swaps on Bank of America(BAC), Goldman Sachs(GS) Jump as S&P Cuts Ratings. The cost to protect debt issued by U.S. banks from Bank of America Corp. to Goldman Sachs Group Inc. jumped after Standard & Poor’s lowered their long-term credit ratings as it revised criteria for the banking industry. Credit-default swaps on Bank of America, which were little changed before the announcement, increased 16.9 basis points to 478.8 and those on its Merrill Lynch & Co. unit climbed 24.1 to 524.9 as of 4:46 p.m. in New York, according to data provider CMA. Contracts on Goldman Sachs increased 8 to 403.6. “The European sovereign and banking system stress no longer has borders,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “A stone splashing in the European pond causes big ripples in the U.S. as well.” Contracts on Citigroup Inc. increased 9.2 basis points to 306.8 basis points and swaps tied to Morgan Stanley’s debt added 6.2 basis points to 506.9, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Contracts linked to JPMorgan Chase & Co. increased 3.8 basis points to 171.

Repo Rates Top Fed Funds as Euro-Zone Crisis Reins in Lending. The rate on collaterialized loans in the market for borrowing and lending Treasuries has been higher than the amount for unsecured borrowing almost every day this month as Europe's sovereign-debt crisis prompts banks and investors to curtail lending. The overnight general collateral repurchase rate, the cost to borrow Treasuries or cash for one day, has averaged 3 basis points above the so-called federal funds effective rate in November. During the first half of the year, the rate was one basis point on average below the effective rate. The rate was .066 percentage point less on average in the 10 years prior to August 2007, when the collapse of the subprime mortgage market triggered a global credit rout. The rise in the cost for collaterialized loans, which typically have a lower rate than unsecured rates such as fed funds, indicates rising concern the contagion will spread to the U.S. banking system.

U.K. Warns of 'Serious Consequences' After Tehran Embassy Attack. Iranian protesters stormed the British Embassy complex in Tehran yesterday, calling for “death to the U.K.” and burning its flag, a week after the U.S. and Britain imposed additional sanctions due to Iran’s nuclear program. The incursion lasted less than two hours before the protesters were cleared out by police, according to the Associated Press. Detained protesters will be brought before judiciary authorities, the state-run Mehr news said, citing Tehran’s police chief, Hossein Sajedinia. U.K. Prime Minster David Cameron, in a statement, said all embassy personnel have been accounted for after the attack, which he called “outrageous and indefensible.” “The Iranian Government must recognize that there will be serious consequences for failing to protect our staff,” Cameron said.

Senate Republicans to Propose Offset for Payroll Tax Cut. U.S. Senate Republicans plan to offer a proposal to offset the cost of extending a payroll tax cut, establishing a marker for negotiations with Democrats and President Barack Obama. Minority Leader Mitch McConnell didn’t provide details to reporters today about how Republicans plan to cover the forgone revenue from extending a 2-percentage-point reduction in employees’ portion of the Social Security tax. He predicted Congress would extend the tax reduction, which expires Dec. 31. Democrats have proposed extending and expanding the tax cut. The Democrats’ $265 billion proposal would be offset by a 3.25 percent surtax on annual income exceeding $1 million, and they are planning a test vote as soon as this week. “We think it ought to be paid for and not by raising taxes on the people we’re depending upon to create jobs,” Texas Republican John Cornyn said in Washington today.

China Stocks Decline Most in 2 Weeks on Policy. Chinese stocks fell the most in two weeks after a central bank adviser signaled the nation will maintain tight monetary policies next year and Shenyin & Wanguo Securities Co. forecast a plunge in exports in November. Baoshan Iron & Steel Co. (600019) and Anhui Conch Cement Co., the biggest makers of steel and cement, slid after Shenyin & Wanguo estimated the export growth rate will be halved this month. Jiangxi Copper Co. paced a decline for metal producers after Morgan Stanley said further gains for commodities may be limited next year. Yanzhou Coal Mining Co. dropped 4.2 percent after BOC International cut its share-price estimate by 17 percent amid earnings concerns. “There’s a consensus view that economic growth will slow next year and companies related to investment will suffer,” said Dai Ming, fund manager at Shanghai Kingsun Investment Management & Consulting Co. “The key is whether the economy is poised for a soft landing as is expected by the market.” The Shanghai Composite Index (SHCOMP) fell 49.8 points, or 2.1 percent, to 2,362.58 as of 11:15 a.m. local time, the most since Nov. 16. The CSI 300 Index (SHSZ300) dropped 2.5 percent to 2,544.75.

China Says Kyoto Dispute Puts UN Global Warming Talks in Peril. China said a rift with industrial nations over the Kyoto Protocol’s rules on greenhouse gas risks destroying the international response to global warming, raising the chance this year’s talks in South Africa will fail. Su Wei, Beijing’s lead negotiator, said it’s essential for industrial nations to sign up for another round of emissions reductions under the pact, whose limits expire next year. Japan, Canada and Russia already have rejected extending the treaty. The European Union says it will only take on new commitments if all nations fix a date for adopting a new treaty. “If we cannot get a decision for the future of the second commitment period, the whole international system on climate change will be placed in peril,” Su said yesterday in an interview with Bloomberg and two other news organizations at the talks in Durban. “If the Kyoto Protocol is devoid of any further commitment period, the Kyoto Protocol itself will be dead.”

Kocherlakota Says Fed May Need to Reduce Accommodation. Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said policy makers should begin removing accommodation in 2012, assuming their forecasts for lower unemployment and stable inflation are on target. “It would be simplest to reduce the level of accommodation by changing” the Fed’s pledge to hold rates low through at least mid-2013 “to a shorter period of time,” Kocherlakota said in a speech today in Stanford, California. He told reporters beforehand that the Fed needs to be “clearer” and “sharper” about its objectives.

Wall Street Journal:

Euro Zone Falls Short on Fund. Ministers Look to IMF, ECB as Expected Rescue Pool Seen Too Small to Mount Italy, Spain Rescues. Euro-zone finance ministers agreed on Tuesday on details to expand the bloc's bailout fund but acknowledged it would have less capacity to help troubled nations than once hoped, and suggested future efforts to resolve the worsening crisis would depend on the European Central Bank and the International Monetary Fund coming to their aid.

Merrill Survey: Mass Affluent Americans Saving More. About half of these mass-affluent consumers said their financial situations were the same as they were a year ago, while 23% said their financial situations were better than they were a year ago. The consumer group still expressed growing concerns about their future savings, with 57% saying it will be harder to save for long-term goals five years from now compared with today. Such worries prompted 21% to increase their savings in the last year. The survey reported 47% of non-retirees expected to retire later than they had planned a year ago, up from 42% in January.

Goldman(GS) Focuses on Funding Others. After getting burned by investments in its own hedge funds during the financial crisis, Goldman Sachs Group Inc. is turning to the less risky, but potentially less lucrative, business of providing start-up money to hedge-fund managers. The New York securities firm has raised $600 million from clients such as pension funds, wealthy families and large institutions for a new fund. It plans investments in eight to 10 new hedge funds, to get them up and running, according to people familiar with the matter.

U.S. Nears Milestone: Net Fuel Exporter. U.S. exports of gasoline, diesel and other oil-based fuels are soaring, putting the nation on track to be a net exporter of petroleum products in 2011 for the first time in 62 years. A combination of booming demand from emerging markets and faltering domestic activity means the U.S. is exporting more fuel than it imports, upending the historical norm. According to data released by the U.S. Energy Information Administration on Tuesday, the U.S. sent abroad 753.4 million barrels of everything from gasoline to jet fuel in the first nine months of this year, while it imported 689.4 million barrels.

Hedge Fund Managers Give Policy Makers Poor Marks for Handling of Euro Crisis. Hedge fund managers asked to grade policy-makers’ handling of the European financial crisis handed out low marks, according to a new survey released Tuesday by Aksia, a hedge fund research and advisory firm. “Parents would not be pleased with the report cards of the world’s policy makers,” the Aksia survey said, noting that the U.S. Congress, E.U. leaders, and the U.S. President all received “D” grades. The survey said the low marks “might be generous” given that a wide-majority gave them either a D or F.

Ax Falls at Smaller Banks. Cuts at Lenders as Industry Job Growth Slows: 'There Will Be More to Come'. Smaller U.S. banks and savings institutions are cutting jobs in a sign of a deepening financial-industry retrenchment that is shaking firms from Main Street to Wall Street. More than 2,500 banks cut their work forces in the third quarter, reducing their staff by a combined 20,332 jobs, or 2.5%, according to an analysis by The Wall Street Journal of filings with U.S. banking regulators.

Blame It on Berlin. The euro bailout caucus wants the Germans to write a blank check. The tragedy is that the euro-zone countries failed to abide by their original fiscal rules, a failure that has brought them to this unhappy pass. The Brussels-Washington bailout caucus now wants to extend the damage to monetary policy by printing more euros and worrying about the consequences later. In opposing that option, the Germans are said to be imposing their Prussian morality on everyone else. But without reforms, the countries of southern Europe will never pull out of their downward debt spiral. The Germans are at least telling the truth.

Investor Leon Cooperman Sends Monster, Scathing Letter To Obama. Omega Advisors Founder Leon Cooperman sent a scathing letter to President Obama yesterday, [via @andrewrsorkin] and its contents are just short of being outright brutal. In the three page letter, Cooperman outlines his grievances with Obama's administration, calling his policy decisions "profligate and largely ineffectual" and calling Obama out for using a political rhetoric that promotes the ideas of class warfare.

The Situation In Europe Sounds Kind Of Bad... Economics professor Karl Smith writes on his blog Modeled Behavior that the situation on the ground is more grim than people realize. It's no longer just about sovereign debt, and the ECB, but about a breakdown in the banking system.

John Paulson Apologizes to Investors for 'Worst' Year. Hedge fund legend John Paulson apologized to investors for what he is calling a year that has been “the worst in the firm’s 17 year history.” “We are disappointed and apologize,” the Paulson Funds said in a letter to investors obtained by CNBC. Paulson’s funds stumbled significantly this year. The Paulson Advantage fund was down 32.57 percent for the year. The Advantage Fund Plus, a leveraged version of the Advantage fund, was down 45.35 percent. That represents a slight recovery from an earlier reported decline of 47 during the first nine months of the year. What happened? Paulson misread the macroeconomic conditions, according to the letter, which is titled "2011 Third Quarter Report." “At the beginning of the year, we positioned our portfolios with net equity exposure appropriate for growth in the U.S. and an orderly resolution of Europe’s sovereign credit issues. However, as the year progressed, our assumptions proved overly optimistic and our net equity exposure was too great. Growth in the U.S. slowed and Europeans leaders were, as yet, unable to deal with the escalating sovereign debt crisis,” the letter says. The report says Paulson is confident that “many of our position will recover as fear subsides.” Paulson’s other funds are also suffering. The Credit Opportunities Funds are down nearly 19 percent. The Credit Opportunities II is down 15.31 percent for the year. Paulson’s merger funds are also down. Paulson International Ltd. is down 10.40 percent for the year. Paulson Partners LP is down 9.89 percent. Paulson Enhanced Ltd. is down 22.11 percent. Paulson Partners Enhanced is down 19.83 percent. The Paulson “Recovery funds”, which invest in hotels, financial and real estate services companies are down more than 31 percent, compared to a better than 23 percent gain last year.

ECB's Noyer: Europe's Situation Has Significantly Worsened. European Central Bank governing council member Christian Noyer said on Wednesday that the situation in Europe has significantly worsened, threatening global financial markets. "The situation in Europe and the world has significantly worsened over the past few weeks. Market stress has intensified," he said at a conference in Singapore. "We are now looking at a true financial crisis -- that is a broad-based disruption in financial markets."

Indian Firms Risk Dollar Debt Default as Rupee Slides. Dozens of Indian companies are coming under financial stress after the sharp fall of the rupee against the dollar during the past few months made once-cheap loans in the US currency much more expensive, analysts have warned.

After Bounce, Hedge Funds Slide Again In November. Whipsawing markets continue to baffle supposedly savvy hedge fund managers, who are hobbling again this month after registering a short-lived revival in October. A Bank of America Merrill Lynch hedge fund index fell 1.02 percent through November 23, according to a report released Tuesday by Bank of America Corp (BAC) analyst Mary Ann Bartels. With a week to go, it appears November is shaping up as another mediocre month for the $2 trillion hedge fund industry, in what is shaping up to be a rather forgettable year.

Asian Internet Shoppers Turning Cautious - Visa(V) Survey. Asian internet shoppers are turning cautious, according to a survey by credit card company Visa, with half of respondents saying they plan to keep their year-end shopping budgets at the same level as in 2010. "Shoppers are more cautious this year with their spending. Even if they said they were spending more, they were doing so mainly to keep up with the rising cost of products," Paul Jung, Visa's head of eCommerce for Asia-Pacific, Central Europe, Middle East and Africa, said in a statement.

OmniVision Sees Q3 Below Estimates On Order Cutbacks. OmniVision Technologies Inc gave a third-quarter outlook below market estimates, hurt by a cutback in orders for sensors used in smartphones, sending its shares down 12 percent in extended trade."Late in our second quarter we encountered an unanticipated cutback in orders from major customers for sensors that were designed into consumer devices," Chief Executive Shaw Hong said on a conference call with analysts.

Financial Times:

Businesses Plan For Possible End Of Euro. International companies are preparing contingency plans for a possible break-up of the eurozone, according to interviews with dozens of multinational executives.

Telegraph:

Wolfgang Schauble Admits Euro Bail-Out Fund Won't Halt Crisis. Europe's "big bazooka" bail-out fund is not ready and won't stem the debt crisis that on Tuesday pounded Italy and the European Central Bank (ECB), admitted Wolfgang Schauble, Germany's finance minister. Mr Schauble said eurozone finance ministers, who are meeting in Brussels, could not agree on the terms of the European Financial Stability Facility (EFSF). He told Germany’s Handelsblatt that although Europe needed a fund “capable of action”, plans for the EFSF were too “intricate and complex” for investors to understand. The finance ministers, who were meeting ahead of a full Ecofin summit today, acknowledged the €440bn (£376bn) fund would not win support to leverage it up to €1 trillion. Its capacity would be betwen €500bn and €700bn instead – a total that is unlikely to be big enough to rescue Spain and Italy.

China should take short-term and long-term measures to prevent financial risk, Yi Xianrong, a researcher at the Chinese Academy of Social Sciences, wrote in a commentary. "Marginal" declines in housing prices don't warrant a suspension or loosening of regulatory measures on real estate speculation. A real-estate bubble is the biggest danger for the Chinese economy, Yi writes.

21st Century Business Herald:

China should maintain a prudent monetary policy next year, citing a person close to the country's central bank. The country should keep its M2 money supply target for 2012 no higher than this year's 16%. Inflation target for next year may be lower than 4%, or possibly 3.5%, the person said.

Shanghai Securities News:

China's stock market may face pressure as the lock up on about 160b yuan of stocks ends in Dec., citing analysts.

Securities Times:

China May Suspend Stockpiling of Non-Ferrous Metals. Non-ferrous metals prices are currently "elevated" and stockpiling agencies may start selling to keep prices in check.

BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and financial shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 75% net long heading into the day.

BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 builds slightly on yesterday's sharp gains, despite Eurozone debt angst, rising global growth fears, financial sector pessimism and rising food/energy prices. On the positive side, Utility, Energy, Telecom, Homebuilding, Retail and Education shares are especially strong, rising more than +1.0%. Copper is rising +1.02%. The Germany sovereign cds is falling -3.2% to 107.33 bps, the France sovereign cds is dropping -5.32% to 224.17 bps and the Belgium sovereign cds is dropping -5.07% to 359.66 bps. Johnson Redbook weekly retail sales rose +3.9% this week versus a +3.3% gain the prior week. This is down from a +4.6% average weekly gain during Oct., but up from a +3.1% gain the week of Nov. 8. On the negative side, Airline, Networking, Internet, Steel, Oil Tanker and Alt Energy shares are under pressure, falling more than 1.0%. Small-caps and cyclicals are relatively weak. (XLF) has underperformed throughout the day. Oil is rising +1.8%, gold is gaining +.37%, the UBS-Bloomberg Ag Spot Index is rising +.98% and lumber is falling -3.07%. The Italian 10-year yield is up +1 bp today to 7.24%. The European Financial Sector CDS Index is back very near its Nov. 25 all-time high. The France and Belgium sovereign cds are still near all-time highs and the Spain, Hungary, Italy sovereign cds are still close to their recent record highs. The Germany sovereign cds is still near its Oct. 4th multi-year high and the UK sovereign cds is still near a new multi-year high. The TED spread continues to trend higher and is at the highest since May 2009. The 2-Year Swap spread is very near the highest since May 2010. The FRA/OIS Spread is near the highest since May 2010. The 2yr Euro Swap Spread is near the highest since Nov. 2008. The 3M Euro/Dollar Cross Currency Basis Swap is down -6.06% to -157.50 bps, which is the worst since October 2008. The Libor-OIS spread is the widest since June 2009, which is also noteworthy considering the equity bounce off the recent lows. India's Sensex fell -.98% last night, despite gains in the rest of Asia, and is down -22.0% ytd.As well, Brazil's Bovespa fell -1.28% today and is down -20.2% ytd.China Iron Ore Spot has plunged -31.8% since February 16th and -27.7% since Sept. 7th. The 10-year yield is flat over the last 2 days at 2.0% despite the large equity rally. Stocks are rising today on a jump in US consumer confidence and more leveraged IMF/EFSF European debt crisis solution rumors. Volume remains light, leadership is lacking and breadth is poor. Given the market's oversold state, investment manager underperformance and seasonal strength, I still suspect stocks can build on recent gains over the short-term. However, I still believe that even if the market eventually gets what it appears to want, money printing and greater debt for the Eurozone, these measures are not long-term solutions for an acute debt crisis. Recent data indicate that Europe is already in mild recession. Moreover, an outright credit crunch appears to be developing in the region, which would lead to a much more severe contraction. I still think the risk in equities remains substantial over the intermediate-term unless a real positive catalyst emerges from Europe over the coming weeks. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting, a bounce in the euro, seasonality, technical buying and investor performance angst.

EU Bailout Seen Falling Short, Pressuring ECB. Europe’s effort to expand its bailout fund to 1 trillion euros ($1.3 trillion) is falling short, forcing renewed consideration of a role for the European Central Bank in insulating Spain and Italy from the debt crisis, two officials familiar with the discussions said. Finance ministers are holding an initial discussion today on channeling ECB loans to cash-strapped euro nations through the International Monetary Fund, aiming to bring the central bank onto the front lines without violating its ban on direct lending to governments, said the people, who declined to be identified because the talks are at an early stage. With renewed prodding from the U.S., European leaders are pondering a fifth “comprehensive” fix after an October blueprint failed to stop a widening rout in Italian markets or quell speculation that France will lose its top credit rating. Germany is pushing for governance changes at a summit next week that would tighten enforcement of budget rules, a move that might make it easier for the ECB to step in. The rescue fund “alone will not be able to solve all the problems,” Luxembourg Finance Minister Luc Frieden told reporters before tonight’s Brussels meeting. “We have to do so together with the IMF and with the ECB in the framework of its independence.” The first leveraging option, using the EFSF to insure 20 percent to 30 percent of new bond sales, faces a credibility test in the markets and may not be ready until January. It also might splinter the Italian and Spanish bond markets, by creating insured bonds that are more attractive than bonds currently trading, the people said.

ECB Fails to Attract Sufficient Bids to Mop Up Liquidity From Buying Bonds. The European Central Bank failed to fully offset the extra liquidity created by its bond purchases for the first time in seven months, a sign of mounting tensions among euro-area banks. The Frankfurt-based ECB said today that 85 banks bid a total of 194.2 billion euros ($259 billion) for seven-day term deposits. It had aimed to drain 203.5 billion euros, the amount its bond purchases have created since the program began in May last year. It last fell short of its intended total on April 26. “It’s just another indication of how uncertain the situation is,” said Michael Schubert, an economist at Commerzbank AG in Frankfurt. “At the moment, banks are holding more cash than necessary. There’s a lot of caution.”

Dollar Funding Costs at '08 Levels Flag Sustained Credit Crunch. The cost for European banks to fund in dollars rose to the highest level since October 2008 for a fifth day, indicating a longer-lasting credit crunch than that following the collapse of Lehman Brothers Holdings Inc. The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, was 154 basis points below the euro interbank offered rate at 1:40 p.m. in London, from minus 149 basis points yesterday. The gap has widened from as little as minus 8 basis points on May 4. Banks face more sustained funding pressure compared with 2008, because investors “are panicking about the exposure to sovereign debt and any fallout from a potential breakup of the euro,” said Marchel Alexandrovich, an economist at Jefferies International Ltd. in London. “Until the political mess is resolved and there is clarity on the future of the euro, banks are going to be shrinking their balance sheets, hitting economic growth in the process,” he said. The one-year basis swap was at 103 basis points under Euribor, compared with minus 104 basis points yesterday, data compiled by Bloomberg shows. The Euribor-OIS spread, a measure of banks’ reluctance to lend to one another, rose one basis point to 94 basis points, data compiled by Bloomberg shows. The spread, which is the difference between the borrowing benchmark and overnight index swaps, was at 98 basis points on Nov. 3, the widest since March 2009. Lenders increased overnight deposits at the European Central Bank, placing 281 billion euros ($375 billion) with the Frankfurt-based ECB yesterday, up from 256 billion euros on Nov. 25.

Italy Pays More Than 7% at Bond Auction. Italy was again forced to pay above the 7 percent threshold that led Greece, Portugal and Ireland to seek bailouts when it sold 7.5 billion euros ($10.1 billion) in bonds today, short of the maximum target for the auction. The Rome-based Treasury sold 3.5 billion euros of a new three-year bond, 2.5 billion euros of 2022 bonds and 1.5 billion euros in 2020 bonds, just shy of the top range of 8 billion euros for the sale. The 2014 note yielded 7.89 percent, the highest since September 1996 for a three-year bond and up from 4.93 percent when similar-maturity debt was sold last month. “Italy is paying a considerable premium for its debt and today’s auction confirmed the recent trend,” Annalisa Piazza, an economist at Newedge Group in London, said in a note. “If we want to look at the ‘bright’ side, the Italian Treasury managed to allocate a big size of its debt today.”

American Airlines' AMR Corp.(AMR) Files Bankruptcy. American Airlines parent AMR Corp. (AMR) filed for bankruptcy after failing to secure cost-cutting labor agreements and sitting out a round of mergers that dropped it from the world’s largest airline to No. 3 in the U.S. With the filing, American became the last of the so-called U.S. legacy airlines to seek court protection from creditors. The Fort Worth, Texas-based company, which traces its roots to 1920s air-mail operations in the Midwest, listed $24.7 billion in assets and $29.6 billion in debt in Chapter 11 papers filed today in U.S. Bankruptcy Court in Manhattan.

Fed's Lockhart 'Skeptical' of Bond-Buying. Federal Reserve Bank of Atlanta President Dennis Lockhart said expanding securities purchases is unlikely to give a sufficient boost to U.S. growth, without ruling out the strategy or other easing options. “I am skeptical that further asset purchases will produce much gain in terms of increased economic activity,” Lockhart, who votes on monetary policy next year, said in a speech in Atlanta. “I don’t believe further bond purchasing by the Fed is a potent policy option given the set of circumstances we currently face.” Lockhart, speaking at an economic outlook conference sponsored by the University of Georgia’s Terry College of Business, said that “at this time my notion of appropriate monetary policy” is “holding steady” the benchmark federal funds rate near zero and keeping the balance sheet “steady at current scale.”

U.S. Consumer Confidence Rises Most Since '03. The Conference Board’s index increased to 56 from a revised 40.9 reading in October, the biggest monthly gain since April 2003, figures from the New York-based private research group showed today. The gauge exceeded the most optimistic forecast in a Bloomberg News survey.

China's Exports to Europe 'Falling Off Cliff': Chart of the Day. The CHART OF THE DAY shows how the cost of hauling goods to Europe from China is falling faster than rates for deliveries to the U.S. The price for shipments to Europe is down 39 percent to $511 per twenty-foot box since Aug. 31, according to figures from Clarkson Securities Ltd., a unit of the world’s largest shipbroker. That’s more than double the 18 percent slide in the cost to the U.S. West Coast, measured in 40-foot units. “European imports from China will be much, much lower going forward,” said Rahul Kapoor, a Singapore-based analyst at Platou Markets. “If you see falling freight rates, that would imply that European demand is falling off a cliff.”

Chinese Solar-Panel Makers Seen Shrinking to 15 in 5 Years on Supply Glut. China’s solar-panel supply glut is consolidating the industry and will likely slash the number of domestic manufacturers to 15 within half a decade, according to a research group at the nation’s top economic planning agency. Some producers have cut factory capacity or closed plants because of the surplus, Li Junfeng, deputy director general of the Beijing-based Energy Research Institute at the National Development and Reform Commission, said in an interview. “There’ll be no more than 15 large manufactures left in five years,” Li said by phone, without identifying them. There were 330 panel makers in China in 2008, according to the Chinese Renewable Energy Society, which said it stopped counting as it couldn’t keep up with the “multifold” increase since then.

Iran Protesters Storm UK Embassy as Ties Deteriorate Over More Sanctions. Iranian protesters stormed the British Embassy’s sites in Tehran, calling for “death to the U.K.” and burning its flag, a week after the U.S. and Britain imposed more sanctions over Iran’s nuclear program. “It amounts to a grave breach of the Vienna Convention, which requires the protection of diplomats and diplomatic premises under all circumstances,” U.K. Foreign Secretary William Hague said in a statement. “I spoke to the Iranian foreign minister this afternoon, to protest in the strongest terms about these events and to demand immediate steps to ensure the safety of our staff and of both embassy compounds.”

Oil Rises Above $100 in N.Y. on Iran Tensions. Oil rose above $100 a barrel in New York after U.S. consumer confidence climbed by the most in more than eight years and Iranian protesters broke into and vandalized the British Embassy’s compound in Tehran. Crude oil for January delivery rose $1.58, or 1.6 percent, to $99.79 a barrel at 12:30 p.m. on the New York Mercantile Exchange. The contract climbed to $100.06 during the session. Prices are up 9.2 percent this year. Brent oil for January settlement gained $1.85, or 1.7 percent, to $110.85 a barrel on the London-based ICE Futures Europe Exchange.

Wall Street Journal:

Euro-Zone Contagion To Core May Spark EUR 1 Trillion Outflows - Nomura. Unless euro-zone leaders come up with a solution to the currency union's financial and fiscal woes, foreign investors could offload more than EUR1 trillion of euro-zone bonds in the coming months, Nomura warned in a research note dated Monday. Without a quick, workable solution, Nomura's optimistic view is that potential sales of euro-zone debt by private foreign investors could reach EUR544 billion, or EUR416 billion if investors hold on to German exposure. "This pace of liquidation is consistent with the recent pace of cross-border asset sales in Italy and Spain, and it would be less than the amount of liquidation observed in Greece and Portugal to date," noted Jens Nordvig and Yujiro Goto, currency strategists at the bank. In the extreme case where reserve managers follow suit, Nomura estimates that the impact could be nearly double at just over EUR1 trillion. "These numbers are clearly very large, and lack of market liquidity makes it hard to liquidate in this size. However, we think this is still a scenario to consider seriously to gauge potential selling pressure," Nordvig and Goto added. Nomura is rapidly becoming one of the most pessimistic banks on the euro zone, having recently published research notes on the legal ramifications of a euro-zone breakup and the possibility of returning to some form of accounting unit if such an event occurred.

Germany Set to Overtake Italy in CDS Protection. “The fact that net notional CDS outstanding on Germany is looking set to overtake Italy at $20bn [last week] may raise some eyebrows,” particularly after last week’s “failed” auction of German government debt, JPMorgan analysts wrote in a note to their clients. They added that, if current CDS trends continued, Germany would overtake France as the most insured country by mid-January.

Telegraph:

UK Autumn Statement: Proof That A Lack Of Growth Leads To Carnage. Ouch. If you wanted to know exactly how expensive weak growth is to the economy, the Chancellor’s Autumn Statement has provided the answer. Crippling. Over the five years from 2011/2012 to 2015/2016, the Government will have to borrow £111bn more than had been expected just nine months ago. The reason? Because the Government will raise about £156bn less in tax than had been forecast.

Euro Crisis: Italy at Risk of Insolvency, European Finance Ministers Warned. Mario Monti must tackle Italian tax evasion to avoid other eurozone economies being damaged, says report. European finance ministers were warned on Tuesday night that Italy's liquidity crisis could leave the eurozone's third biggest economy insolvent with devastating impact on the fate of the single currency and its big core economies, Germany and France. Eurozone finance ministers met in Brussels in their latest attempt to plot a path out of the EU's worst crisis. With Mario Monti, the new Italian prime minister and finance minister, reporting to the session on his austerity package aimed at saving Italy and shoring up the euro, a confidential report from the European commission and the European Central Bank said Monti would need to do more than already promised. The report, obtained by the Guardian, said Monti had to go further in his promises to combat rampant tax evasion in Italy, which is estimated to amount to 20% of gross domestic product. "The sovereign debt crisis has now moved from the periphery to Italy and other core euro area countries. Pressure on Italian sovereign bond yields is particularly acute, reflecting investors' mounting concerns with the sustainability of Italy's large public debt" – almost €2tn, (£1.7tn) – the report said. "The risks of a full-blown sovereign liquidity crisis can increase rapidly in the absence of a determined policy response … Persistently high interest rates increase the risk of a self-fulfilling 'run' from Italy's sovereign debt. A liquidity crisis could then turn into a solvency crisis, whose repercussions for other large euro area countries would be very acute given their exposure to the Italian economy."

Die Welt:

German banks have less money available for loans than a year ago, citing calculations carried out by Thomson Reuters on behalf of the newspaper. That threatens the supply of credit to companies and private clients.

Project Syndicate:

China 'Not Yet Near Hitting Rocks,' Yu Yongding Writes. Despite the high likelihood that China’s economic growth will slow significantly in 2012, a hard landing is unlikely. Nevertheless, while there is no need to be overly bearish about China’s short-term economic prospects, because of the slow progress in fundamental adjustment and further reform, even Chinese Premier Wen Jiabao has noted that China’s growth is ultimately unsustainable. The real test has yet to come.

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